Idea in Brief

The Problem

For years, environmental, social, and governance (ESG) issues were a secondary concern for investors. Today institutional investors and pension funds have grown too large to diversify away from systemic risks, so they must consider the environmental and social impact of their portfolio.

A New Outlook

Interviews with 70 executives in 43 global institutional investing firms found that ESG is top of mind for these executives. Corporations will soon be held accountable by shareholders for their ESG performance.

What It Means for Companies

To respond, companies must publish a statement of purpose, share an integrated report with investors, increase the involvement of middle managers, and improve internal systems for measuring and reporting ESG and impact performance information.

Most corporate leaders understand that businesses have a key role to play in tackling urgent challenges such as climate change. But many of them also believe that pursuing a sustainability agenda runs counter to the wishes of their shareholders. Sure, some heads of large investment firms say they care about sustainability, but in practice, investors, portfolio managers, and sell-side analysts rarely engage corporate executives on environmental, social, and governance (ESG) issues. The impression among business leaders is that ESG just hasn’t gone mainstream in the investment community.

A version of this article appeared in the May–June 2019 issue (pp.106–116) of Harvard Business Review.